Technically sound and fundamentally crazy describes the grain complex this week. After moving higher through the week, the corn market broke free in Friday trading and posted nearly 30-cent gains for the week. Soybeans and wheat followed suit.
"This is the Perfect Storm Number 2," says Jerry Gulke, , owner of the Gulke Group and Top Producer market analyst.
Corn led the way due to the Informa Economics estimates for next week’s USDA Crop Production Report. Informa issued two numbers for expected corn yield. The first is 164.8 bu./acre and that is what the consulting group believes USDA will release next week. The second is what got the market really going, says Gulke.
They really believe the national corn yield will be 158.5 bu./acre. "When you plug that in, it’s a whole lot different picture than 164.8 bu./acre," he says. "If USDA stays the same on demand, which most of us think that will go higher because of exports, then we come in with about 782 million carryover and that puts the market up a lot higher."
If you’re interested in seeing Gulke’s technical analysis, go to www.GulkeGroup.com, call 707-365-0601 or e-mail Ashley@gulkegroup.com.
What’s Too High? If that’s the case, the Gulke believes we could be headed for a time of price rationing. Currently the cash corn market is typically around the $4.00/bu. level, which he says is palatable for livestock feeders.
"What’s the guy going to pay that needs it for food? That’s a whole different matter. I don’t know how high that is, but I imagine it’s around $4.50/bu. cash corn, which puts us at $5.00/bu. futures. That’s going to probably make some people hurt. When do we get that? Are we going to decide that it’s now, or is going to be worse next spring or summer?"
History Lessons? There is some historical perspective that can be brought to this. Most recently, the market faced a similar situation in 2007-08. Gulke believes the 1972 market is probably a more accurate comparison, however.
Transportation costs two years ago were significantly higher than they are now, because the economy was still booming at that time. "It’s a different ballgame now, for sure."